Insurance questions vex process

Whether the flooding in New Orleans caused by the breach in the 17th Street Canal should be covered by flood insurance policies or homeowners insurance policies is likely to be the key insurance question emerging from Hurricane Katrina, and may end up in court, participants in a meeting of the Joint Legislative Committee on Insurance said Friday.

National Flood Insurance policies by law are capped at $250,000. Some homes in the New Orleans area that were affected by the 17th Street Canal flooding don't have flood insurance because they're not in a flood plain, while many other homes that have flood insurance are worth more than $250,000.

Louisiana lawmakers would like for homeowners insurance policies, which are tied to the value of the house, to cover the damage. If not, some Louisiana lawmakers would like the federal government to create a special appropriation to cover the gap.

"Does the homeowners insurance cover it? That's going to be the big question down the road, " Sen. James David Cain, a Republican from Dry Creek, who chairs the committee, said in opening remarks. "A lot of issues like the flooding are going to end up in court."

Kristina Simpson, an intergovernmental affairs specialist from the Federal Emergency Management Agency who came to the meeting to answer lawmakers' questions, said that in previous disasters, FEMA did not cover the gap if homeowners were underinsured.

Former state representative Chuck McMains Jr., who now represents the Property Casualty Insurers Association of America, a trade association for the insurance industry, had no answers on the flood insurance question.

"A lot of that is going to take more investigation of exactly what happened, " McMains said. "I don't know the answer to that question."

McMains said that the insurance industry wants to set up a mediation process to handle those disputes individually. In Florida, mediation solved 83 percent of the disputes from the four hurricanes that struck the state last year, added Jim Donelon, chief deputy commissioner from the Louisiana Department of Insurance.

McMains also said that he thought mold and mildew damage caused by the flooding would also fall under the flood insurance policy, not a homeowners insurance policy.

But some state lawmakers didn't accept these answers. Rep. Peppi Bruneau, R-New Orleans, said he has constituents whose homes never flooded during Hurricane Betsy or the May 1995 floods that now have water problems. Because the water came from one break in the levee rather suggests that it's an engineering failure, and people who have paid diligently on their homeowners policies for decades shouldn't be abandoned in their time of need.

"If all the water was coming over, why did it give in just one spot?" Bruneau asked. "We find it unusual that it was caused by a brand new levee collapsing."

Other insurance questions are likely to emerge. If areas such as eastern New Orleans are deemed unfit to be rebuilt, will the federal government reimburse homeowners for the value of their lots, which are separate from their homeowners' policies? What happens to tax bills that will be issued on homes that no longer exist? And, how will the many people who lost jobs through Hurricane Katrina get health insurance?

The other major concern for New Orleans area lawmakers was how local people can participate in the millions of dollars of local contracts that will be let to rebuild Louisiana. Enabling local people to get work will help rebuild the economy and increase the chances that people return to New Orleans.

"I'd like you to let FEMA know that we would like our people to participate in the rebuilding process, " said Sen. Edwin Murray, D-New Orleans. "It's a good way to help bring the local economy back."

Rep. Karen Carter, a Democrat from New Orleans who co-chairs the insurance committee, said that she has heard that several international engineering and construction firms already have handshake agreements for major contracts, and she's concerned that the process is moving too fast for locals to grab on.

Simpson said that FEMA recognizes the economic development importance of the rebuilding contracts, and promised to give the Louisiana representatives about how the contract process works and what skills are typically needed for the work.

But Simpson emphasized that FEMA's role is one of helping the state as a last resort - local and state governments need to try to solve problems first.

"If you want to keep it in Louisiana, you need the state to keep it in Louisiana, " Simpson said. "We are always in a support role. We do not have jurisdiction to take over."